Employee Referrals are one of the biggest sources of external hires.
That’s because they’re one of the most cost effective ways to attract quality candidates – the reward to employees who referred your new hire are usually about 80% lower than the cost of agency fees. Your employees can speak on your behalf to share your employment brand and show their connections why your company is a great place to work.
Plus, your employees know your company’s culture and your expectation of hires, so referral candidates are essentially screened for cultural fit. It’s unlikely that you are going to be referred a poor candidate, because the person referring won’t want this to reflect poorly on them if they did.
Referrals are hired faster and stay longer because the new hire who was referred already knows someone in the organization and won’t feel completely alone when they start. Plus, getting referrals instead of applicants will have an impact on how many resumes you have to sift through in order to find the right hire.
Here are some quick stats for you:
A referral candidate is 54 times more likely to result in a hire than a candidate coming from a job board.
Employees hired through referral have a 25% higher retention rate, according to a Workforce Management & Ohio University Study.
Jobvite found that employee referrals get hired 55 percent faster than candidates from company career sites.
Mind you, you cannot expect to make 100% of your hires through referrals, but companies that do it right can easily get 70% of their hires through referrals
A recent Towers Watson survey found that 54% of the companies that participated had problems attracting employees with critical skills, despite the high unemployment rate. Of the surveyed companies, 37% report having trouble hiring top-performing employees. You can overcome the shortage of top performing employees when you create a work culture that inspires great employee referrals. Here is what works to garner employee referrals and the actions that will submarine your employee referrals.
Employee referrals are a critical component in your efforts to obtain the best potential employees. Employee referrals provide better than average candidates because employees know your company culture and have an idea about what employees work successfully in your organization. Employee referrals also reflect on the referring employee who wants to be positively regarded in your organization.
Yet, despite their hype and potential usefulness, many employee referral programs fail to attain their program goal: superior employee referrals.
According to Dr. John Sullivan, “Many recruiting managers with woefully under-performing programs think they have great programs and are somewhat shocked when they learn that, on average across all industries, 1:3 hires come from employee referral and that it is no longer uncommon for more than half of all external hires to come from employee referral in organizations with leading talent management functions…If your organization doesn’t have an ERP, or has one that produces less than 30% of all external hires,” examine your referral program to determine why you experience poor results.
Successful Employee Referrals
In his studies, Dr. Sullivan finds consistent factors in successful employee referral programs. Among them, are these:
The employee referral program is responsive. The referral program provides feedback to the preferred candidate within one – three days of the referral and to the referring employee just as quickly.
The employee referral is given preferential treatment in the timeliness of the organization’s initial contact, phone screen, interview, and decision about hiring the employee.
The employee referral program targets hard-to-fill positions that are essential to the organization.
All employees are encouraged to make employee referrals, regardless of position.
Employee referrals are not just about incentives or a cash bonus. Successful employee referral programs are part of a company’s culture of building a highly effective team and encourage employees to select coworkers who fit the culture and the company’s work ethic. Employee referrals should enhance the referring employee’s experience of work.
The organization pays attention to the employee referral program. Examples include: interview referring employees to determine how they met the employee referred, ask for referrals at employee onboarding meetings, and give current employees referral cards to pass out when they meet a well-qualified potential employee.
Provide current employees with training about how to build their online social networks and use them to recruit superior candidates for your company.
Dr. Sullivan also found that dedicated staff enhanced the value of an employee referral program. He mostly deals with large companies where this may be possible. However, even the smallest company can build value from and for employee referrers.
Employee Referrals With No Financial Incentives
An employee referral program that does not offer financial incentives can successfully attract participants. For enthusiasm and an ongoing stream of referrals, companies need to emphasize the importance of employee referrals for their recruiting efforts.
Provide non-monetary incentives such as:
- public recognition of an employee referral,
- easy ways for employees to track the status of their referrals,
- periodic banquets or lunch with the president to honor employees who make positive, qualified referrals,
- positive feedback in performance development planning and daily performance feedback for qualified employee referrals, and, in general,
- a culture that honors, respects, and recognizes employees who refer qualified candidates.
Dr. Sullivan’s research found several novel approaches to paying incentives for employee referrals. Several companies make a contribution to an employee’s favorite charity. Others, rather than paying an employee a hefty incentive for a referral who is hired, offer small incentives for each employee referral, whether the referred candidate is hired or not.
Problems With Employee Referrals
These ideas take care of the ongoing problems experienced by many poorly executed employee referral programs in which employees are rewarded for low quality referrals. Or worse, employees are only rewarded for referrals that result in a hire. Even worse are referral programs that only pay the referring employee all or part of their bonus after the new employee works out successfully for six months or a year.
Does it make any sense in an employee referral program to pay for low quality referrals? Or, as is the case with many employee referrals, to pay an employee the promised bonus only after a referred employee is hired and successfully employed for six months to a year? This certainly submarines any motivation that an employee might have had to make referrals when the incentive is paid only after two situations occur that he or she cannot control: the referred employee is hired and the new employee is successful for six months to a year.
Finally, organizations are woefully incompetent at providing feedback to the referring employee for referrals. Undermining their efforts, too, is the speed at which employee referrals are acknowledged and reviewed. The most important factor in employee referrals is swift candidate evaluation and feedback to the referring employee.
Encouraging employee referrals and successful employee referral programs are a win for organizations that gain qualified employees, a win for employees who get to work with qualified coworkers, and a win for referring employees who benefit from the recognition, or in some cases, the financial incentives of their employee referral program. Employee involvement is key to an effective employee selection process.
Source: You Can Inspire Great Employee Referrals.” About.com Human Resources. N.p., n.d. Web. 05 June 2013.